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The first rule of Fight Club is you do not talk about Fight Club, but we must. We live in extraordinary times, and the battle at the heart of it all isn't good versus evil, or growth versus value, or even cyclicals versus defensives, but the long-running brawl between asset deflation and central-bank reflation.

Sidelined spectators can be forgiven for feeling confused about who's winning, with stocks rallying but commodities plunging and bond yields wilting. Jobless claims shrank last week toward a five-year low, and our economy has expanded for 15 straight quarters. But last quarter's 2.5% annualized growth rate was below the 3.2% economists expected, and we're living through the longest stretch of years with sub-3% expansion since the Great Depression, all of which gives central bankers license to keep printing money.

With such abundant liquidity but scarce growth, what's an investor to do? There is no comfortable answer. "To get more positive on bonds in 2013, we would need a recession," write Bank of America Merrill Lynch's investment strategists. "To get more positive on commodities, we would need inflation." Neither seems likely just yet. So with Europe's recession deepening, China's rabid growth slowing, and U.S. investors fretting about a short-term pause, it's no wonder that the crowd is piling into defensive, high-yielding U.S. stocks.

While earlier rounds of the Federal Reserve's quantitative easing levitated raw-material prices, the latest bout hasn't had quite the same effect -- with metals and oil near 2013 lows. Lower commodity costs can help stocks and bonds, because they increase consumers' spending power and ease inflation pressure, BofA Merrill Lynch argues.

Meanwhile, keep an eye on real-estate and bank stocks, which are barometers of whether central banks are winning the fight.

UNLIKE THEIR PEERS IN INFORMATION TECHNOLOGY, biotechnology stocks lately have had no trouble winning fans. After going nowhere for more than a decade, biotechs have shimmied up 111% over the past two years -- three times better than even the gains for the beloved health-care sector.

What accounts for their new glow, and can it last?

Adam Parker, Morgan Stanley's U.S. equity strategist, thinks that investors are once again becoming more willing to reward research and development. For years, money plunked into drug research didn't pay off, and valuations of companies engaged in R&D were punished because they were viewed as destroying shareholder value. Today, however, Parker counts fewer than 20 companies globally with market caps of more than $30 billion that do any health-care research. "Ten years ago, the human genome could barely be decoded. Ten years from now, one can guess that it will be done for pennies, nearly instantaneously," he writes. "We could be witnessing a substantial re-rating, where instead of a discount on R&D being embedded in health-care stocks, a premium could ultimately be awarded for the potential option value of curing a disease."

Once upon a time, R&D focused on chemicals that led to blockbuster drugs like Lipitor and Plavix. By the late 1990s, the focus had shifted to genomics and the study of encoded genetic instructions. A decade later, these endeavors are starting to pay off in the treatment of everything from cancer to autoimmune disorders. Biotech firms' profits are rising more than 20% a year, and in 2012, our regulators approved the most drugs in the past 16 years.

Mark Schoenebaum, ISI's biotech and pharma analyst, thinks R&D productivity has become a driver of earnings growth. "If you think we're in the early days of an R&D renaissance, then most of these stocks have a long way to go," he writes. He remains wary of ascribing too much value to treatments before the latter stages of clinical trials (say, Phase 3), and acknowledges that luck plays a part in R&D productivity, but he says recent successes may lead us to "reasonably conclude that we're in a new normal."